Shares of Supreme Industries are in focus on Wednesday after the stock received a double upgrade from UBS, which has not improved its outlook on the company but has also hiked the target price on the scrip.
In its latest note, UBS has explained how it has gotten more constructive on Supreme Industries, on the back of sticker-than-expected PVC price hikes. The brokerage firm is also expecting potential tailwinds from the Jal Jeevan Mission 2.0.
In line with its bullish view, UBS has upgrade Supreme Industries to 'neutral' from 'sell' while raising its 12-month price target from Rs 3,050 to Rs 4,000. This implies an upside of around 10% from Tuesday's closing price of Rs 3,639.
UBS had earlier raised concerns on peak JJM execution, overcapacity weighing on margins and return on capital employed as well as key person risk.
But the announcement of JJM 2.0 offers some much-needed relief for Supreme Industries, though the brokerage noted that management remains cautious on near-term pickup in execution.
What has been more decisive in turning around the company's near-term outlook is the PVC pricing. UBS expects PVC prices to hold at current levels, which is 8-10% elevated compared to FY26 levels. This could lead to better realisations in FY27 and FY28.
The stickier price environment, coupled with management's guidance of 9% plastic pipe industry volume de-growth versus Supreme's 14% volume growth in FY26, makes a strong case for Supreme Industries.
Following its Q4 fineprine, UBS has raised FY27 and FY28 volume growth assumptions to 13% and 12% respectively, and increased realisation assumptions, with earnings rising 15% and 12% across the two years. But at the same time, the brokerage flagged that management commentary on execution remains cautious, suggesting volume growth upside could be capped.
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